Industrial warehousing and affordable housing to grow much faster as compared to office and premium residential space says Colliers Research
Industrial warehousing and affordable housing are expected to grow much faster compared to office and premium residential space, says Colliers Research. Alongside that, improved industrial production and increased infrastructure spending are expected to support the property market in 2018.
Developers should, therefore, make room in their portfolios for other asset classes, such as industrial space, warehousing and affordable housing, to gain an early mover advantage.
The Indian economy, as measured by growth in Gross Domestic Product (GDP), accelerated by 6.3 percent (Q3 2017), an improvement from 5.7 percent (Q2 2017).
The growth is likely to exceed 6.7 percent (FY2017) and 6.9 percent to 7.4 percent for the next three years, driven by improvement in industrial production, the spurt in consumption levels and increased infrastructure spending, it notes.
“India is in a sweet spot as a destination for foreign investments. While there has always been very keen interest for Grade ‘A’ commercial assets where cap rates continue to become increasingly aggressive, there is a huge demand in the warehousing and logistics space as well as in the affordable housing side. With land prices correcting for residential and RERA giving confidence to investors, foreign investors are starting to look at residential too albeit selectively”, says Gagan Randev, National Director, Capital Markets & Investment Sales, Colliers International India.
As per Colliers Research, steady economic expansion and improvement in infrastructure spending ought to support the Indian investment property market.
WATCH: Planning To Avail A Home Loan? 9 Things You Must Know
Notwithstanding the economic disruption, the commercial real estate market has remained robust in 2017.
The market has recorded pan-Indian leasing volume of about 35 million sq ft (till Nov 2017) excluding renewals and pre-commitments. Also, co-working or flexible working spaces, represent about 11 percent of total absorption over the first eleven months of 2017 (Jan- Nov 2017) compared to last year's share of 3 percent.
The office leasing market will remain robust in 2018 and over the subsequent few years, reflecting strong employment growth and economic reforms.
However, Colliers does not foresee a further increase in the absorption level, despite strong demand and other factors, such as the quest for workspace efficiency and the advent of flexible office space which may hold overall absorption volumes at the same level.
It has also been observed that several technology and e-commerce companies are exploring expansion in Tier-II and Tier-III Indian cities.
“Given the government's push for smart cities development, firms should consider expanding in the cities where the state governments intend to spur growth by offering more fiscal and non-fiscal incentives and building crucial infrastructure projects such as airports and railways. However, occupiers should carefully analyze the talent pool in each city before making such decisions, since due to increased urbanisation young talent is migrating towards Tier I cities, and talent acquisition and retention can be a challenge in these cities,” says Surabhi Arora, Senior Associate Director, Research at Colliers International India.
As per Colliers Research, e-commerce logistics businesses are highly optimistic about the rising demand for supply chain services in India.
The growth in the manufacturing sector, rising interest among foreign investors and expansion of 3PL/4PL service landscapes should drive the demand for large contiguous organised industrial space at strategic locations in coming years.
To achieve the targets for Housing for All by 2022', the government has taken up initiatives such as granting infrastructure status to affordable housing and Pradhan Mantri Awas Yojna (PMAY) - Housing for All (Urban).“We expect that private developer participation will increase in affordable housing owing to lower financing cost and income-tax exemptions for developers. Considering both the demand and supply factors, we expect affordable housing should be the next major growth area in the residential sector in coming years,” says the report.